Willie Hall loves to browse and buy cars online, but he wants more options. Soon, he may turn to Amazon.com.
"I'm already a Prime member," said Hall, who lives in Colorado and bought a used Fiat 500 Abarth on Carvana in 2021. "I've been with Amazon for God knows how long and know the way they operate."
Amazon is eager to see just how many Willie Halls there are in the U.S. The company last month said shoppers next year will be able to browse, finance and complete a purchase of Hyundai vehicles on Amazon. Shoppers will only have to visit a dealership to pick up their car; the company is also working on delivering the vehicles.
Car sales represent Amazon's next bet in e-commerce dominance and come after the Covid-19 pandemic made online car purchases more popular. Amazon executives want to make buying vehicles through its website as simple as purchasing toilet paper or dog food, and the company is looking to strike broad partnerships with carmakers.
The company is set to face several challenges in expanding the program beyond a pilot phase for employees starting early next year: One is dealerships, which remain at the center of most new-car sales and depend on service revenue for profit incentives. A second will be trying to get customers who visit its website mainly for lower-priced items to turn to the platform for one of the biggest purchases of their lives. Amazon also will have to navigate different government regulations.
"Customers tell us it's really hard to buy a car," Fan Jin, Amazon's director of vehicle sales, said in an interview. Vehicle-buying software is fragmented, with dealers using a range of software providers. Varying regulations across states also make it difficult. "It's a process that we've heard time and again could use improvement, and we have an opportunity to go and prove it," she said.
When the new service launches later next year, Amazon said shoppers will be able to complete every step of the car-buying process through its website. Only new Hyundai vehicles will be available at the start. Consumers will have different financing options, but the company said it is still working through details. Eventually, Amazon wants to expand to trade-in vehicles and used cars.
Many dealers might be loath to accept a high volume of online sales because they make a significant amount of money on service and warranty deals that customers agree to when they finance a car purchase.
Mike Sullivan, who runs a Hyundai dealership in Santa Monica, Calif., that is part of the pilot program, views the Amazon partnership as a positive step. Salespeople at the dealership could make half as much per sale in commission in online sales versus in person, he said, but the upside is the time spent on those sales is expected to be far less. Overall compensation could increase, he said.
During the height of the pandemic, Sullivan and many auto-sales professionals learned to embrace online sales. His dealerships sold about 300 cars online during the health crisis. Selling with Amazon could be easier, because "we now have the power of Amazon guiding these people to us," he said.
Another issue is that Amazon will be trying to get customers to think of its platform for car-buying. The typical transaction on Amazon is under $50, according to a recent survey by Consumer Intelligence Research Partners, which studies Amazon customer habits. Only 11% of customers surveyed reported spending $1,000 or more on a single item.
"They're great at getting you to spend $30 or $40, but it's hard to break through to the bigger stuff," said Josh Lowitz, co-founder of the research firm. "The bigger stuff is more infrequent, and so it's more special for the customer."
Jin, Amazon's director of vehicle sales, said while many people go to Amazon for everyday purchases, the company also has an established base that makes infrequent, higher-priced purchases for items such as furniture and electronics.
Some analysts estimate that two-thirds of customers already know what they want before purchasing their vehicles, with many people conducting their research on the web. But even if Amazon customers are ready for online car purchases, signing new carmakers will be complex and will depend on how much the Hyundai partnership succeeds, said Chris Sutton, vice president of automotive retail at consumer-data analytics firm J.D. Power.
Amazon and Hyundai first partnered in 2021 through an online Hyundai showroom where viewers could "build" a car and locate inventory. Amazon said consumers responded positively to the showroom, and the company surveyed shoppers who indicated they were interested in going through the entire car-buying process with Amazon.
To entice Hyundai, Amazon struck a broad business partnership that included cloud-computing, advertising and integration of its Alexa technology in the brand's cars beginning in 2025. It is also expected to provide dealers with performance data. AWS customers who make long-term cloud commitments can pay lower rates.
The company has turned to more corporate partnerships in numerous other business segments in recent months, including a partnership with Meta Platforms' Instagram for product sales and a logistics deal with Canadian e-commerce company Shopify.
Amazon has dabbled in the automobile industry for years. In 2000, it linked its website to an online car retailer that was later bought by a competitor. Amazon began an online car parts and accessories store in 2006 and a vehicle research tool a decade later, when it also ran a test in Italy to allow customers to start purchases of some Fiat vehicles through its website.
The various experiments gave Amazon insight into the automobile industry, but company executives said it wasn't ready to go all-in until recently. Amazon saw opportunity expand in the pandemic.
From 2020 to 2022, Carvana's U.S. e-commerce market share rose to 1.3% from 0.7%, according to market research firm Insider Intelligence. Automakers expanded at-home delivery programs during the health crisis, while dealers improved their websites to help customers use online.
Some of those trends have receded, challenging Amazon and other companies betting on online car sales.
Sullivan, the dealer in Santa Monica, said since the height of the pandemic most of his customers have returned to purchasing their vehicles in person.
He is hoping Amazon can lure a share of customers back to online purchases. "People will go to Amazon," he said.
Comments